Why Phasing Out Subsidies for Fossil Fuels Won't Make Clean Energy Competitive

A while back, I posted some quick math reminding readers that while pushing to end subsidies for mature, centuries-old fossil fuel technologies is a pretty smart policy, it on it’s own will be far from sufficient to make clean energy cost competitive. The global figures come from the International Energy Agency’s latest World Energy Outlook and reveal that worldwide, renewable energy sources receive more than twice the subsidy than fossil fuels, when compared based on how much of global energy demand they supply.

Here’s a summary of the global figures:

• Fossil energy:
  • Total subsidies (2009) = $312 billion;
  • Share of global energy consumption provided (2009) = 83 percent;
  • Subsidy per percentage of global energy consumption provided: $3.8 billion
• Renewable energy:
  • Total subsidies (2009) = $57 billion;
  • Share of global energy consumption provided (2009) = 7 percent;
  • Subsidy per percentage of global energy consumption provided: $8.1 billion (Note: excludes conventional hydropower and biomass)
• Compared on a per unit of energy provided basis, renewables therefore receive 2.1x more government subsidies than fossil fuels.
• Data source: International Energy Agency

Today, we’ll add in the U.S. figures, which advantage renewables even more. That’s because globally, much of the subsidies provided for fossil fuels are provided in either developing nations or in oil rich Middle Eastern nations, which make it easier for their citizens to purchase fuels through government-funded subsidies for consumer purchases (rather than subsidies for fossil fuel producers; see IEA for more on that).

For the United States:

• Fossil energy:
  • Total subsidies (2002-2008, cumulative): $72.4 billion;
  • Share of U.S. energy consumption provided (2008): 84.6 percent;
  • Subsidy per percentage of U.S. energy consumption provided: $0.9 billion.
• Renewable energy:
  • Total subsidies (2002-2008, cumulative): $28.9 billion;
  • Share of U.S. energy consumption provided (2008): 4.3 percent;
  • Subsidy per percentage of U.S. energy consumption provided: $6.7 billion. (Note: excludes conventional hydropower)
• Compared on a per unit of energy provided basis, renewables therefore receive 7.4x more U.S. federal subsidies than fossil fuels.
• Data source: subsidies for Environmental Law Institute, energy cosumption from U.S. Energy Information Administration, “Annual Energy Outlook 2010.” Note that subsidy figures are cumulative for the seven years from 2002 to 2008. The per unit subsidy figures for the U.S. should therefore not be strictly compared to the global figures above.

Clearly, ending all subsidies for fossil and renewables alike would not ‘even the playing field’ for renewables, as some have argued. These figures indicate that fossil energy would still retain quite a distinct price advantage.

Even if we cut all subsidies for fossil fuels, then, we’ll need accelerated innovation to fully close the price gap between new renewables and incumbent fossil energy. (For more on that price gap, see a previous installment of our Friday Factoids series here).